Working overseas - what you need to know
Working overseas - what you need to know
Australian residents are taxed on their worldwide income. This information outlines the tax implications in Australia if you are working or thinking about working overseas. You will also need to take into account the tax law of the country you are working in.
If you are working overseas, you need to work out whether you are still an Australian resident for tax purposes. If you are unsure, Residency - what you need to know can help you work out your residency status. Foreign residents pay tax differently to residents on their Australian-sourced income.
The following flowchart will help you work out if you need to lodge an Australian tax return.
If you become a foreign resident
If you are a foreign resident of Australia, you will only need to lodge a tax return if you have Australian income - excluding any income from which foreign resident withholding tax has been deducted, such as bank interest and unfranked dividends.
If you remain an Australian resident
If you remain an Australian resident while working overseas, you must declare your worldwide income, both assessable income and exempt foreign employment income, even if tax was taken out in the country where you earned the income.
If you have assessable income from overseas, you must declare it on your Australian tax return. If you have paid foreign tax in another country, you may be entitled to an Australian foreign income tax offset, which provides relief from double taxation.
You must also report foreign employment income that is exempt from Australian tax as it may be taken into account in working out the amount of tax you have to pay on your assessable income.
You must convert all foreign income, deductions and foreign tax paid into Australian dollars.
Foreign employment income is income derived by an Australian resident working overseas as an employee. Your foreign earnings include salary, wages, commissions, bonuses and allowances. They may be paid by an overseas or an Australian employer.
Foreign employment income is exempt from Australian tax if you are engaged in continuous foreign service as an employee for 91 days or more, subject to activity tests and certain disqualifying conditions.
Your net foreign employment income is any foreign employment income that does not qualify as exempt income, less any expenses you incurred in earning that income for which you can claim a deduction. This amount will be taxed in Australia at normal marginal tax rates, plus the Medicare levy and Medicare levy surcharge if applicable.
If any foreign tax has been paid on your net foreign employment income you:
- add the foreign tax back to your net foreign employment income (called grossing up) to work out your assessable income amount
- may be able to claim a foreign income tax offset for the tax you have already paid.
Include the grossed up income on your tax return as 'Assessable foreign income' and also include your net foreign employment income.
Lachlan was employed in a foreign country from 15 October 2008 until 23 April 2009. During the period of his foreign employment, Lachlan earned A$11,250 after he paid A$3,750 in foreign tax and incurred work-related expenses for which he could claim a deduction of $A500 for his foreign employment.
After adding back the foreign taxes, Lachlan would have assessable foreign income of A$15,000. After claiming a deduction for his expenses, Lachlan would have net foreign employment income of A$14,500.
Pay and allowances for foreign service with the Australian Defence Forces may be exempt from Australian income tax in certain circumstances. Australian Defence Force members should check with the Department of Defence to work out whether their service meets these requirements.
Some living away from home allowances are subject to fringe benefits tax (FBT). Ask your Australian employer whether your living away from home allowance is subject to FBT. If so, the allowance is not included in your assessable income. If it is not subject to FBT, the allowance is included in your assessable income as foreign employment income, unless you earned the allowance from exempt foreign employment. If your salary is exempt foreign employment income, the allowance will also form part of the exempt foreign income.
If you received a lump sum payment on termination of your foreign employment or from a foreign resident superannuation fund, the payment may be taxable. If the payment is not taxable, it may still be taken into account to work out the amount of tax you have to pay on your other income.
Phone us on 13 10 20 if you have been paid a lump sum payment:
- on termination of your foreign employment
- from a foreign resident super fund, including a direct transfer of benefits to another foreign resident super fund or to a super fund in Australia.
Your Australian employer must withhold tax from non-exempt foreign employment income if they continue to pay you when you are overseas. However, they do not have to withhold tax from exempt payments.
If your foreign employer is not registered for Australian pay as you go (PAYG) withholding, it is unlikely they will withhold any amount for Australian tax purposes from payments they make to you, regardless of whether your income is exempt or not.
If your foreign employment income is not exempt in Australia, you can claim a foreign income tax offset on foreign income tax you have paid.
To lodge a tax return, you will need a tax file number (TFN). This is a unique number we issue to individuals and organisations for identification and record keeping purposes.
If you are a foreign resident of Australia for tax purposes, and you earned salary and wage income, business income, or rental income from an Australian source, you may be required to lodge a tax return.
If you are overseas you can lodge your tax return online using e-tax or you can lodge a paper tax return.
If you have made a mistake or need to amend your tax return, it is important you do it promptly. The easiest way is to complete a Request for amendment of income tax return for individuals. Once you've completed the form then print it off and fax or post it to us with appropriate attachments.
Most refunds for tax returns lodged using e-tax or by phone will be paid within 12 business days. Paper tax returns for individuals are usually processed within 42 days of being received.
You can check the progress of your refund online.
We offer you a range of convenient payment options, including BPAY®, direct debit and mail.
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If your status has changed from resident to foreign resident during the income year, answer 'Yes' to the question 'Are you an Australian resident?' on your tax return. This ensures you are taxed at resident rates for the income year. Your non-residency for part of the year is taken into account by a reduction in your tax-free threshold. You are entitled to a pro rata tax-free threshold for the number of months you are an Australian resident.
To claim a tax offset for a dependent spouse, you must both be Australian residents for tax purposes. You will need to reduce your claim to take into account the period you were both foreign residents of Australia.
As a foreign resident of Australia, you do not have to pay the Medicare levy, so you can claim the number of days that you are not an Australian resident during an income year as exempt days on your tax return.
From the date you cease to be an Australian resident, there is no need to disclose your foreign-sourced income on your tax return. Also, all Australian-sourced interest, dividends and royalties derived after you ceased to be an Australian resident are subject to the withholding tax provisions as a final tax and should not be included on your tax return.
Australia has entered into bilateral agreements with a number of countries that address the problem of 'double super coverage'. Double super coverage occurs when an employee is sent to work temporarily in another country and either they (or their employer) are required to make super (or equivalent) contributions under the legislation of both countries for the same work.
Under these agreements, an Australian employer/employee will be exempt from having to make compulsory super contributions in the country where the employee is temporarily working, provided the employee remains covered in Australia by compulsory super arrangements.
From 1 July 2009, new rules apply to foreign employment income. If you have any employees that are working in a foreign country, you need to be aware of the changes to the taxing of foreign income.
The government continually reviews international tax arrangements. For more information about how potential international legislative changes may affect you, refer to New legislation.
If you need help applying this information to your own situation, contact us by phone.
You can phone us from overseas on +61 2 6216 1111 between 8.00am and 5.00pm (Australian Eastern Standard Time), Monday to Friday except national public holidays.
You can also fax us on +61 2 6216 2830.
Last Modified: Tuesday, 19 March 2013